The American dollar is currently enjoying its fastest rise in 40 years, according to Citibank. Since the start of 2015, the dollar has gone up in value about 14%.
The dollar's rise is a result of America's strong economy. While other parts of the world are struggling economically, the U.S. has been riding a wave of strong economic news.
Normally, a higher dollar is good news. And for American consumers, it still is. Though wages have remained primarily flat, the dollar now buys just a bit more than it did a year ago. And a better economy means more jobs, which pushes even more money back into the economy.
But the stronger dollar is not all good news.
Why big U.S. tech companies lose
Surprisingly, the big losers may be American-based companies that sell overseas. And the most vulnerable of them all: large U.S.-based tech companies.
Why? As the U.S. technology market becomes increasingly saturated, foreign growth in emerging countries like China becomes more critical to companies like IBM, Apple and Microsoft. And they are finding big demand on foreign soil. Foreign countries are clamoring for software and hardware from many of the largest U.S. tech firms. For example, China, with its growing middle class, is the world's largest smartphone market, representing roughly 30% of global sales in the second quarter, according to Gartner.
As a result, many of the biggest tech companies now glean a significant portion of their sales from abroad. For example, last quarter, Apple said it got 62% of its revenue from outside the U.S, while Microsoft said it got about 54% of its revenue from outside the United States in fiscal 2015. According to Goldman Sachs, the technology industry as a whole relies on foreign countries for about 60% of revenues -- a much higher percentage than in any other sector.
Apple CEO Tim Cook recently said “We remain extremely bullish on China, and we're continuing to invest," adding that iPhone sales saw a 112% year-over-year increase in that country.
Apple said about 27% of its revenue for the third quarter came from China, and about 22% from Europe.
But even as the tech market is exploding, some U.S. tech giants face growing concerns. They may find that the sales they make abroad are discounted once they are converted into dollars. Those companies also have to work harder to keep foreign customers from straying to competitors that may undercut them with cheaper prices.
Some companies have to rely on cost cuts, reduced headcount and increased levels of automation to remain competitive. For example, HP CEO Meg Whitman said last month that as new technologies emerge, the company has “got to restructure that labor force to low-cost locations, to much more automation than we have today.”
Is stronger better?
Given all this, is a stronger dollar really a good thing, or is it better for the dollar to stay weak? Economists says the middle of the road is really the best for U.S. businesses.
"The solution isn't a weak dollar, but it's also not the ever-strengthening dollar policy we've been seeing in recent years," said David Malpass, chief international economist with Bear Stearns in New York. "The best solution, perhaps, is a strong and stable dollar, but no one is asserting that just yet."
While the strong dollar may not be good for large tech companies, it is a good thing for American consumers and companies importing raw materials and intermediate goods because it increases their purchasing power.
